EUR 850.00 For Business Accounts Only

Morningstar | ASML on Track to Enjoy Steady Rise in Sales Over 2019 Thanks to EUV; Shares Overvalued

ASML reported first-quarter results slightly ahead of our expectations thanks to an additional extreme ultraviolet shipment in the quarter. Management echoed what has been the semiconductor industry narrative of a second-half recovery. The pause in equipment spending by memory customers has been the chief culprit of the recent weakness faced by ASML and its peers. Memory demand for ASML’s lithography systems is slated to be down 20% for 2019. We still expect ASML to generate overall annual top-line growth, however, as its EUV revenue to logic and foundry customers to enable next-generation process technologies has been robust. Meanwhile, ASML is on track to ship 30 EUV systems in 2019. We are maintaining our $160 fair value estimate for narrow-moat ASML and view the shares as overvalued at current levels due to our skepticism regarding long-term EUV penetration.

First-quarter revenue was EUR 2.23 billion, down 2.5% year over year and 29.1% sequentially. Equipment revenue came in at EUR 1.69 billion, up 1.3% over the prior year, with EUV tools representing 22% of system sales. System sales to Taiwan rose 50% sequentially, underscoring TSMC’s commitment to its ongoing EUV ramp. Memory revenue fell 30% sequentially, as customers have lowered utilization rates and slowed capacity expansion in reaction to the softer environment. We continue to anticipate equipment spending by major memory chipmakers to resume in 2020. Gross margins for the quarter were 41.6%, above the firm’s guidance of 40% due to a more favorable non-EUV tool mix. We expect incremental margin expansion over the course of the year as ASML benefits from greater tool volume, field upgrades, and shipments of higher-margin, newer NXT 3400C EUV systems. Management expects second-quarter sales to be at a midpoint of EUR 2.55 billion, which implies a 14% sequential increase.